A Treasury watchdog’s internal review finds persistent security flaws in two core IRS systems, problems that were identified repeatedly during development yet left unresolved as the systems went live.

Inspectors warn that weaknesses affecting data protection, user access controls, activity monitoring and disaster recovery put the confidentiality, integrity and availability of millions of taxpayer records at risk.

The review focuses on the Customer Account Data Engine (CADE) — a long‑awaited replacement for the agency’s legacy tax processing infrastructure — and the Account Management System (AMS), the employee interface used to access CADE data.

CADE work began in 1999. It started handling 1040EZ returns in 2004 and has processed about 28.1 million returns this year, roughly 19.8% of filings. Continued development, operation and maintenance through 2012 were projected to exceed $1 billion.

Over seven months of testing, auditors compiled a 22‑item list of security deficiencies. They say an attacker could likely obtain taxpayer information with little risk of being detected, and that the systems could not be recovered effectively during a serious incident.

Notable findings include: privileged users’ activity and security incidents were not being logged; contractors could alter configuration settings without formal approvals or security checks; many application error states were not handled, increasing crash risk; backups and interagency data transfers lacked encryption; and policies for disabling former employees’ accounts were absent.

Perhaps most striking to auditors: CADE had no defenses against malicious code — in effect, no antivirus protection for a program running at billion‑dollar scale.

The report also criticizes the program’s leadership for accepting the system for operation despite these known gaps. Inspectors said system owners did not view the issues as severe enough to merit delaying deployment or issuing an interim authorization to operate; the watchdog disagreed.

Treasury CIO Arthur Gonzalez responded that nearly half of the vulnerabilities had been corrected before the report’s release and that the IRS has action plans to address the remainder. He also disputed efforts to mark the full report as sensitive but unclassified, a request that was denied.

Auditors, however, rejected the notion that the problems stemmed from broken processes. Instead, they concluded that IRS offices failed to fulfill their responsibility to fix security weaknesses prior to deployment.

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